The Commercial Rent (Coronavirus) Act 2022 received Royal Assent on 25 March 2022 and takes effect from that date. The Act coincides with the end of the moratorium imposed by the Coronavirus Act 2020, which had the effect of limiting the remedies available to a landlord of business premises.
The purpose of the 2022 Act is to help to preserve the tenant’s business whilst at the same time not affecting the landlord’s solvency. It is intended to promote amicable settlement of arrears that have accrued during lockdown. In the event that it is not possible for the landlord and tenant to reach agreement, the Act introduces a statutory arbitration procedure to determine the ability of the tenant to pay the arrears and to impose a settlement on the parties.
Key points arising out of the Act are as follows:
- The Act applies to tenancies protected by the Part II of the Landlord & Tenant Act 1954 including tenancies contracted out of Part II. The Act does not therefore apply to farm business tenancies.
- The Act applies to “protected rent debt”. In order to constitute protected rent debt, the following conditions must be fulfilled:
- The tenant’s business must have been adversely affected by the Coronavirus by being subjected to a legally enforceable closure between 21 March 2020 and 18 July 2021 (in England) or 7 August 2021 (in Wales). For example, businesses which were never subject to legal closure such as essential food retailers will not fall within the scope of the Act.
- The arrears must have accrued within the protected period that is 21 March 2020 ending with the last day that the business was subject to the legal closure requirement. The last day will vary from business to business. For example hospitality and nightclubs were unable to open until 18 July 2021 whereas garden centres were able to open from 13 May 2020.
3. The Act introduces a moratorium to prevent landlords from using their usual enforcement remedies to recover a protected rent debt during the period of 6 months from the date on which the Act came into force i.e. until 25 September 2022 or later if an arbitration process under the Act is in process and has not yet been concluded. The Act does allow for the moratorium to be extended beyond 25 September 2022 if appropriate.
4. Landlords may not present a winding up petition against a corporate tenant or a guarantor during the moratorium period in relation to a protected rent debt. Nor may a landlord present a bankruptcy petition against an individual tenant or guarantor during the moratorium period.
5. The arbitration process is intended to provide a swift and binding resolution. Each party will bear their own costs in relation to the arbitration process. Although the arbitrator’s fee is payable by the party who refers the claim to arbitration, when the arbitrator makes an award, he must also make an award requiring the other party to reimburse the applicant for half the arbitration fees.
6. The arbitrator’s award may be enforced in the same manner as the Judgment or Order of the Court.
7. The Secretary of State has approved arbitration bodies rather than arbitrators personally, including the Chartered Institute of Arbitrators, the Royal Institute of Chartered Surveyors and Falcon Chambers Arbitration.
If the arrears do not meet the qualifying criteria of a protected rent debt, for example because the payment due from the tenant fell due outside of the protected period or because the tenant’s business was not subject to enforced closure, the landlord may now use all the usual remedies available to recover the arrears. The parties are encouraged to negotiate an agreement using the Code of Practice for Commercial Property introduced in November 2021. The Code is non-binding and it remains to be seen what view the Courts will take in relation to any failure to comply with the Code.
The effectiveness of the Act will depend on how willing the landlord and/or the tenant is to have a resolution imposed on them by an arbitrator as well as the nature of the awards made by the approved arbitrators.